Opinion
Editorial

Something smells

Ontario Premier Kathleen Wynne's cap and trade scheme came into effect this week. Here are eight major reasons why you should be alarmed.

1. Costs appear to be higher than estimated

The Wynne government estimates the initial cost of cap and trade per household will be $156 per year, due to increased costs for gasoline ($8 per month) and natural gas home heating fuel ($5 per month), rising to $285 annually in 2019 in direct and indirect costs. However, its own estimate that it will take in $2 billion annually from cap and trade ($8 billion from 2017 to 2020) suggests the real annual cost to Ontarians will be $400 per household, given that Ontario has about five million households. The Ontario Energy Board says the initial increase in homeowners' heating bills alone -- which won't be listed as a separate charge -- will be $5.68 to $6.70 per month, already up to 34% higher than the government's claim.

2. No transparency

Unlike a carbon tax, which is visible, cap-and-trade raises the prices of most goods and services, since most consume fossil fuel energy. Businesses pass along their increased costs from having to buy carbon allowances from the government or their competitors, by raising their prices. Since the price of consumer goods is determined by numerous factors, Ontarians will have no way of knowing what they are paying for cap and trade.

3. Severe impact on low-income Ontarians

Cap and trade is essentially a hidden tax on consumption. Since lower income earners, including seniors on fixed incomes, spend a larger proportion of their income on necessities, such as heating their homes in winter, cap and trade will disproportionately impact them in terms of costs. This even though their carbon footprints are relatively small because they consume less, tend to live in apartments as opposed to single family homes, take public transit as opposed to owning cars and do not engage in fossil-fuel intensive activities such as taking foreign vacations.

4. No revenue neutrality

While the government is promising to help Ontarians cope with the higher cost of living cap and trade causes, its scheme will not be revenue neutral, meaning it will not return to the public in the form of tax cuts or grants the $2 billion annually it intends to raise from carbon pricing. Instead of helping all Ontarians to cope with the higher cost of living, the government will pick winners and losers, which governments are notoriously bad at doing.

5. Limited effectiveness

Auditor General Bonnie Lysyk says cap and trade will reduce Ontario's industrial greenhouse gas emissions linked to climate change by only 3.8 megatonnes annually by 2020, 20 per cent of its 18.7 megatonnes target. The government claims the rest of its target, 14.9 megatonnes or 80 per cent, will be achieved by counting emission reductions in California and Quebec resulting from Ontario's entry into their cap and trade market in 2018.

6. Double counting emission cuts

Lysyk warns that since there is no agreement between California, Quebec and Ontario about how to report emission cuts under cap and trade, they may be double counted, undermining the credibility of Ontario's reported cuts. For example, a business in California could sell 100 carbon allowances (each one permitting the bearer to emit one tonne of industrial carbon dioxide emissions or its equivalent) to an Ontario company. California could then record the sale of 100 carbon allowances as having lowered its emissions by 100 tonnes, because they're being exported to Ontario. Meanwhile, Ontario could record the purchase of the same 100 credits by an Ontario company as having lowered Ontario's emissions by 100 tonnes, because it lowered California's emissions.

7. No verification of emission cuts

Ontario businesses emitting greenhouse gases are expected to pay up to $466 million more from 2017 to 2020 to buy carbon allowances from emitters in Quebec and California, which could rise to $2.2 billion by 2030. "Our concern with these payments," Lysyk said, "is that the government has not adequately studied whether Ontario businesses buying these allowances will actually contribute to additional emissions reductions in Quebec and California." As a result, "these funds may be leaving the Ontario economy for no purpose other than to help the government claim it has met a target."

8. Potential misuse of free carbon allowances

The Wynne government is giving out free carbon allowances -- essentially free money -- to major Ontario industrial emitters because it says it has to protect them from foreign competition in jurisdictions that don't have carbon pricing. But it has not explained what mechanism it has, if any, to prevent industries that receive free allowances from raising their prices as if they had paid for them, resulting in undeserved, windfall profits, as occurred in Europe's cap and trade market, the Emissions Trading Scheme.